Hurricanes and Debt

And here we are again. Another hurricane season in the Caribbean has started with a bang. As I write, Hurricane Beryl, a Category 4 hurricane (winds in excess of 130-156 miles per hour) is wreaking havoc in the Caribbean. It's battering the Eastern Caribbean. It has my own home country of Jamaica in its sights. We hold our breath wondering if we too will be hit.

Hurricane Beryl is the earliest Category 4 storm on record. It formed in June, at the beginning of the region's hurricane season. Category 4 hurricanes, virtually by definition, cause catastrophic damage.

Already, news is coming in of devastating damage in Grenada and its outer island of Carriacou. My heart is with the people of Grenada and all those in the Eastern Caribbean affected by Beryl.

But, this immediate grief of mine will, no doubt, turn into longer term distress. Yet again, many of our islands will again be caught in the vicious cycle of hurricane recovery and increased debt. Immediate attempts to recover will place a burden on already overburdened fiscal budgets. Financing recovery will stretch budgets and most likely see an increase in debt. As someone said, we're just recovering from COVID-19 and now this!

In the case of Grenada, which 20 years ago was laid low by Hurricane Ivan, this will be an interesting test. Grenada was the first country to include hurricane clauses in its loan agreements. Anticipating the increased frequency and intensity of hurricanes, Grenada negotiated with many of its creditors, to include a loan clause where debt payments would automatically come to a temporary standstill in the event of a severe hurricane. The idea, was that the cash flow relief from suspended debt service payments could be diverted towards hurricane recovery. It would ease the fiscal burden and release funds immediately for recovery without the long waits so typically associated with donor funding.

Given the intensity of Beryl, and the early incoming news of complete devastation of Carriacou - CNN reports that it took half an hour to flatten Grenada's Carriacou - I'm hoping at least that some fiscal relief is at hand. I'm hoping those hurricane clauses are triggered. If not, we are set to see the repeated cycle of recovery then disaster and debt, that so characterizes the Caribbean and other small island developing states.

Hurricanes will not be going away. We therefore need all the tools at our disposal - innovative debt instruments like catastrophe bonds, climate resilient debt clauses, risk insurance, rapid financing facilities such as those now offered by the IMF and regional development banks. Let the physical damage not segue into economic and financial damage as well. We need to be able to build more resilient infrastructure, we need to to finance recovery, we need to be serious about combatting climate change. Most of all we need to avert another debt crises in the Caribbean.

How resilient are we? Beryl may soon tell us.